Cadillac Bets on Virtual Dealerships

Cadillac Bets on Virtual Dealerships

June 5, 2016 8:21 p.m. ET

Buyers walking into a Cadillac dealer in the near future could find an interesting thing on the car lot: nothing.

General Motors Co.’s luxury division has about three times as many U.S. stores as German luxury auto makers or Toyota Motor Co.’s Lexus, but sells only about half the volume. Short of steering around rigid state franchise laws and hammering out financial settlements to shutter stores, a plan is being hatched to convert a portion of Cadillac’s 925 stores into virtual dealerships that will be low on overhead and big on sophisticated technology.

In a somewhat unprecedented way of moving metal, Cadillac President Johan de Nysschen will this month begin looking for commitments from some store owners willing to set up showrooms where buyers can get a car serviced or learn about products via virtual reality headsets without getting behind the wheel. Driving off immediately with a new vehicle will be impossible because these stores won’t have inventory.

Virtual stores are a part of “Project Pinnacle,” an extensive retail-strategy overhaul by Mr. de Nysschen first introduced to dealers a few months ago in closed-door meetings, dealers said.  Hired by Chief Executive Mary Barra in 2014 to turn the struggling luxury maker around, Mr. de Nysschen is revamping the way the company compensates its dealers by rewarding them less on the basis of vehicles sold (an industry practice known as stair stepping) and more on the way those dealers mimic better performing luxury brands with perks such as free roadside assistance.

Company executives will solicit commitments during a roadshow that starts in June, traveling to about a half-dozen cities to win over dealers confused or even angered by a plan that could be seen as a way to force the smallest of dealers out of business, according to GM and several dealers. Mr. de Nysschen wants to know which of five tiers of dealers those store owners want to fit in, including whether some of the dealerships with the lowest volumes would be willing to go to tier 5, which is virtual.

Regarding virtual dealerships, a GM spokesman said Cadillac is working on the concept and researching technologies.

Mr. de Nysschen came to Cadillac amid GM’s ignition-switch crisis and his aggressive stance to clean up a luxury brand in disarray has been the subject of some complaints within the dealer body, according to dealers and executives familiar with the matter.

Many dealers view Mr. de Nysschen’s ability to push through Project Pinnacle as a test of his staying power at a company that has in the past squeezed out managers who ruffled too many feathers. Mr. de Nysschen wasn’t available to comment for this article.

One long-held belief among dealers he has come to embrace is that Cadillac’s dealer count has been considered a valuable asset because many of these franchises are attached to larger-volume Chevrolet stores that are closer to much of the population than other luxury stores. Even if a Cadillac store sells only a few cars a month, that is a few cars more than the brand otherwise would have sold. And service bays are closer to customers.

Mr. de Nysschen’s supporters say keep their franchise, lose the inventory.

“They can still sell the same volume,” said Will Churchill, owner of Frank Kent Cadillac in Fort Worth, Texas, and head of Cadillac’s dealer council. “They don’t have to stock the 15 cars and hope that they have the right one…the data shows they probably don’t.”

Closing dealers or discontinuing brands is costly due to franchise laws that have long protected individuals from widespread consolidation by the manufacturer. GM and Fiat Chrysler Automobiles spent billions in 2009 to cancel agreements with thousands of dealers.

Some dealers in lower-volume locations will stop short of going virtual. Brian Hamilton, principal at Midway Auto Dealerships in Kearney, Neb., said even a limited amount of inventory is necessary and doubts many dealers will want to entirely ditch the traditional selling model.

Mr. Hamilton’s state is an interesting test case for Cadillac. Once home to 22 stores, the count has shrunk to eight after GM’s 2009 bankruptcy and Cadillac’s volume declines. Still, that is quadruple what BMW, Lexus or other key luxury competitors have in the state. “Hopefully we can use that to our advantage.”

Those who do adopt the virtual model will have tester cars on site, which can be loaned to people getting their car serviced or used in test drives, Mr. Churchill said. He said prospective buyers can learn a lot about a Caddy by putting on the virtual-reality goggles. Because Cadillacs are made in the U.S., orders should be quickly filled.

Mr. de Nysschen’s virtual concept is new, and strategies that eliminate inventory have been rarely employed in the U.S.

Tesla Motors Inc., an electric car maker limited on capital and alone in selling direct to consumers, has similar arrangements in some shopping malls and other locations. Tesla customers typically wait months for their new car or SUV.

While some dealers have voiced concern about Project Pinnacle’s potential to squeeze out small-volume stores, most say Cadillac needs to change. Once the benchmark for premium automobiles, GM has spent 15 years investing heavily in the brand—but it still falls far behind foreign rivals in terms of profit, reputation and volume.

Having so many outlets has helped the domestic brand lure people who otherwise wouldn’t consider a Caddy, but it also requires GM to produce a glut of inventory—a practice that is costly and threatens to erode the brand’s luxury cachet. Cadillac has an 88 days’ supply of sedans sitting on dealer lots, according to, a number that exceeds levels at Germany’s three luxury makers.

“We’re competing against BMW, Lexus and Audi,” Mr. Churchill said. He says Cadillac therefore needs to quit behaving like a mass-market brand.

In a round table interview with reporters earlier this year, Mr. de Nysschen said GM knows the mass market extremely well, ranking as the No.1 U.S. player and No.3 in the world in terms of sales.

Auto makers have long flooded dealer lots for two reasons: car companies book revenue on production volumes, not retail sales. An overabundance of output can boost revenue, and the problem can be taken care of later via discounts or production cuts. Car buyers are also used to having ample selection to choose from.

Mr. De Nysschen says this isn’t the case with luxury car buyers.

He said “I don’t think Hermès or Rolex are famous because they have a sale every month. They have brand cachet.”

Write to Christina Rogers at, John D. Stoll at and Gautham Nagesh at


Popular posts from this blog

Report: World’s 1st remote brain surgery via 5G network performed in China

Visualizing The Power Of The World's Supercomputers

Beijing Orders Alibaba To Dump Media Assets That Rival China's Propaganda Machine